A “PART 36 OFFER” THAT ATTEMPTS TO VARY USUAL COSTS CONSEQUENCES IS NOT A PART 36 OFFER AT ALL: HIGH COURT DECISION

In James v James & Ors [2018] EWHC 242 (Ch) HHJ Paul Matthews (sitting as a High Court Judge) determined an interesting issue in relation to an offer made in the course of proceedings. A “Part 36” offer which attempted to vary the incidence of costs “to the end of the relevant period or acceptance if later” was inconsistent with the requirements of Part 36. Part 36 states that costs liability lies to the date of acceptance. This attempt to vary the terms of costs liability, albeit minor, meant the offer could not be viewed as a valid Part 36 offer.

THE JUDGMENT

This is my judgment on costs arising out of the trial of this claim and counterclaim. The main judgment was handed down on 19 January 2018, when the parties appeared before me by counsel to discuss the terms of the order. There was argument before me about costs, but we ran out of time and the submissions were continued in writing, being received on 31 January 2018 and 7 February 2018.

There were 2 main issues at the trial. One was whether the testator had had capacity to make his will, and the other was whether a proprietary estoppel equity had been raised in favour of the claimant. On both issues the claimant failed and the defendants succeeded. On any view, the defendants are the successful party for the purposes of any costs order I might make.

However, the matter is complicated because there is an offer in writing made by letter dated 24 August 2017 sent by Burges Salmon on behalf of the defendants to Wilsons on behalf of the claimant. The defendants say that this amounts to a CPR Part 36 offer, and the consequences that flow are those provided for under that Part. The claimant however says that this letter does not qualify as a CPR Part 36 offer, and that the general principles on costs therefore apply, subject (in the case of the challenge to the will) to certain special rules in probate claims.

The letter of 24 August 2017 divides the two parts of the case into the “Intestacy Claim” (the challenge to the will based on lack of capacity) and the “Estoppel Claim” (the claim to a proprietary estoppel equity). Together these are referred to as the “Claims”. It also defines “Counterclaim” to mean the defendants’ counterclaim that the testator had capacity to make the will.

Paragraph 2.1 of the letter states in part:

“We are, therefore, authorised to make your client the following offer to settle under Part 36 (the “Offer”).”

And paragraph 2.2 of the letter states:

“The Offer is made pursuant to Part 36 of the Civil Procedure Rules and it is intended to be a claimant’s Part 36 offer. Accordingly, if your client accepts the Offer within 21 days (the “Relevant Period”) your client will be liable for our client’s costs, in accordance with CPR 36.13.”

Then paragraph 3 of the letter states as follows, so far as material:

“The Offer is to settle the whole of the Counterclaim and the Claims on the following terms:

[ … ]

Your client is to be liable to pay our client’s costs of the Claim and the Counterclaim on the standard basis, to be assessed if not agreed, up to the end of the Relevant Period or, if later, the date of service of notice of acceptance of this Offer.”

The claimant makes two points in relation to this letter. The first is that the letter is expressed in terms of constituting a claimant’s Part 36 offer, but the defendants are defendants, and not claimants, and although they made a counterclaim in relation to the will challenge, they made no counterclaim in relation to the proprietary estoppel claim. A defendant’s Part 36 offer must be for a sum of money: see rule 36.6 (1). This offer is not. Hence the offer is not a Part 36 offer at all.

I reject this submission. It is clear from rule 20.2 (2) (a) and rule 20.3 (1) that a counterclaim is to be treated as a claim for the purposes of the CPR, with certain exceptions, of which Part 36 is not one. Rule 36.5 (1) (e) requires that a Part 36 offer must “state whether it takes into account any counterclaim”. It is quite clear from paragraph 3 of the letter that the offer contained in it takes into account the defendant’s counterclaim.

In AF v BG[2009] EWCA Civ 757, the Court of Appeal held that an earlier version of Part 36 in materially the same terms as the present enabled a counterclaiming defendant to make a claimant’s Part 36 offer in relation to the counterclaim which took account of the claim (as if that were the counterclaim). This was so, even where the defendant had not yet made a counterclaim, but intended to do so in the future, for Part 36 was expressed and intended to apply even before any claim had ever been made but an offer was put forward to settle the dispute between the parties.

The second point taken by the claimant is that the terms of the offer made in the letter contain a term as to costs, which is inconsistent with the effect of Part 36 itself.In Mitchell v James[2004] 1 WLR 158, the Court of Appeal held that where terms as to costs were included in an offer, it could not be a Part 36 offer. Peter Gibson LJ (with whom Potter LJ and Sir Murray Stuart-Smith agreed) said:

“34. I therefore conclude that a term as to costs is not within the scope of a Part 36 offer. That does not of course mean that a claimant cannot make an offer which includes a term as to costs; the court will have regard to that in exercising its usual discretion in relation to inter partes costs at the end of the case.”

CPR rule 36.13 (1) provides that

“… where a Part 36 offer is accepted within the relevant period the claimant will be entitled to the costs of the proceedings … up to the date on which notice of acceptance was served on the offeror.”

But, as noted above, paragraph 3 of the letter offered to settle on terms which included a term that the claimant was to be liable to pay the defendants’ costs of the Claims and the Counterclaim

“up to the end of the Relevant Period or, if later, the date of service of notice of acceptance of this Offer.”

So, not only is this a term on costs, it is also a term which provides differently (albeit not by very much) from what rule 36.13 provides to be the effect of accepting the offer. Essentially, if the offer were accepted, the claimant would pay the defendants’ costs up to the end of the Relevant Period, whereas by rule 36.13 the claimant would pay the defendants’ costs only up to the date of acceptance within the Relevant Period.

The defendants say that the inconsistency is between paragraphs 2.2 and 3 of the letter. That is literally, but not substantively, correct. Paragraph 2.2 makes clear that the claimant’s liability for costs will be “in accordance with CPR 36.13”. It is the inconsistency with rule 36.13 that matters.The defendants refer me to cases on the interpretation of contracts, such as Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, HL, and then to C v D[2012] 1 All ER 302, for the proposition that

“where an offer clearly expresses an intention that it is intended to comply with Part 36, the court should hold it to do so if at all possible”.

Accordingly, the defendants submit that the phrase “or, if later,” should be construed as meaning “or, if sooner”.

Yet, as the claimant points out, in C v D Rimer LJ said:

“75. … It [ie the offer] was expressly stated to be an ‘Offer to Settle under CPR Part 36’ that was ‘intended to have the consequences set out in Part 36’. Of course, that does not mean that it did in fact comply with Part 36 and therefore must, come what may, somehow be shoehorned into the confines of its four corners: a stated bid to attain a particular goal does not also mean that the goal has been attained. “

He then went on to say this:

“The answer to the critical question still turns on how the reasonable man would read the offer. The relevance, however, of the claimant’s expressed intention to make its offer a Part 36 offer is that, if there are any ambiguities in it raising a question as to whether the offer does or does not comply with the requirements of Part 36, the reasonable man will interpret it in a way that is so compliant.”

No evidence has been placed before me to show that an error was made in writing the letter of 24 August 2017. It is not obvious to me that when the writer said “black” he or she meant “white”, and I do not think that any reasonable man would necessarily so read it. It is not ambiguous. On the contrary, the offer in the terms in which it was made makes grammatical sense, and is not in itself absurd. The problem is that the writer is putting forward terms on which costs are to be paid which are inconsistent with the rule. In these circumstances, I hold that this is not an offer within Part 36 of the CPR, and I do not therefore need to consider the effects of non-acceptance of such an offer provided for by rule 36.17. However, the letter can still be taken into account in the exercise of judicial discretion.

I therefore turn to consider the general rules applicable to costs orders after judgment. The rules to be applied, and factors to be taken into account, are well known, and are set out in CPR rule 44.2; I need not repeat them here. First of all, it is accepted by the claimant that he cannot resist an order that he pay the defendants’ costs of the proprietary estoppel claim on the standard basis. He does not say that the offer letter of 24 August 2017 puts him in any better position on this point, no doubt because he failed to beat the offer it contains. But, second, it is argued that in relation to the will challenge, one of the special rules relating to probate claims applies. This is known as the second principle in Spiers v English [1907] P 122.

In that case, Sir Gorell Barnes, P, dealing with an application by an unsuccessful plaintiff in a probate action for an order that the costs come out of the estate or alternatively that each side pay its own costs, said:

“In deciding questions of costs one has to go back to the principles which govern cases of this kind. One of these principles is that if a person who makes a will or persons who are interested in the residue have been really the cause of the litigation case is made out for costs to come out of the estate. Another principle is that, if the circumstances lead reasonably to an investigation of the matter, then the costs may be left to be borne by those who have incurred them.”

A fuller statement of the second principle was made by Sir James Hannen in Davies v Gregory (1873) LR 3 P&D 28, at 33:

“Where the facts show that neither the testator nor the persons interested in the residue have been to blame, but where the opponents of the will have been led reasonably to the bona fide belief that there was good ground for impeaching the will, there will be no order as to costs. Of course the opponents must have taken all proper steps to inform themselves as to the facts of the case, but if, having done so, a bona fide belief in the existence of a state of things which, if it did exist, would justify litigation, then, although no blame should attach to the testator or to the executors and persons interested in the residue, each party must bear his own costs”.

In Chaplin v Kostic [2008] 22 Costs LR 271, [12], Henderson J made clear that, by using the word “blame”, the judge in Davies v Gregory was not concerned with moral blameworthiness, but simply with what was the cause of the litigation.

As is also made clear by Henderson J in that case, at [6], it is for the claimant to show that the general rule that costs follow the event should not be applied. Here the claimant relies on the second principle, on the basis that:

(1) the testator was suffering from Alzheimer’s disease at the time he made his will, and there was real doubt raised about his capacity;

(2) both of the experts called in relation to the issue of capacity said that the case was one which was very close to the line;

(3) there was little interaction between the testator and the solicitor Ms Thomas, who in any event did not follow the “golden rule” of seeking a medical opinion as to capacity at the time of making the will.

The defendants say that the second principle of Spiers v English is rooted in the inquisitorial jurisdiction of the ecclesiastical courts, and referred to Shovelar v Lane[2012] 1 WLR 637, a case of claimed mutual wills, where Ward LJ said:

“The probate rule is rooted in the inquisitorial exercise that was conducted by the ecclesiastical courts and the Probate Division where the court had to be satisfied of the validity of the will before it could pronounce for the will and admitted to probate. The effect of mutual wills upon the distribution of the estate under a later will which is admitted to probate is a matter for the Chancery Division applying the law of trusts; it is not a matter of probate law and practice. The nature of that litigation is not inquisitorial: it is adversarial and, not infrequently, very adversarial as the two families disunited by death battle for their perceived true inheritance.”

The defendants accordingly submitted that, because the claimant held a strong belief in his right to inherit, he had engaged in “distinctly adversarial” conduct rather than the kind of inquisitorial conduct which prompted the probate rule. They referred also to Wharton v Bancroft[2012] EWHC 91 (Ch), [13], where Norris J said:

” … this is not a case in which the available material reasonably led the daughters to the genuine belief that the will was invalid, but rather that the daughters genuinely and passionately believed that the 2008 will must be invalid whatever the circumstances reasonably showed and would use whatever material was available in order to sustain that a priori position.”

The defendants submitted that the claimant’s doubts as to the testator’s capacity were not reasonable. They were firm beliefs founded on a false premise. Hence the probate rule did not apply.

In my judgment, this case does not go so far. I accept that the claimant had a strong belief in his entitlement to inherit from his father. But I do not accept that he pursued the challenge to the will at all costs. He pursued the challenge to the will because there was a reasonable basis for doing so. There was medical evidence and factual evidence tending to suggest that the testator’s capacity was doubtful. The expert medical evidence (on both sides) reinforced that view. The fact that the so-called “golden rule” was not followed was also significant. There being no contemporary medical evidence, all that was left was for the court to decide. In my judgment, it was reasonable for the claimant to pursue the will challenge, even though, at the end of the day I have held that the testator had capacity to make his will when in fact he made it.

Accordingly, I hold that the costs of the will challenge should lie where they fall and that there should be no order as to those costs. Again, it was not argued, and I do not consider, that the letter of 24 August 2017 makes any substantial difference on this point. On the other hand, in relation to the costs of the proprietary estoppel claim, it is right that the claimant should pay the defendants’ costs on the standard basis, to be assessed if not agreed. I well understand that making a costs order on an issues basis complicates the question of agreeing the costs as an alternative to detailed assessment, but I have no material before me which would allow me to estimate fairly the amounts of work done in relation to the two different heads of claim. I invite counsel to agree and submit a minute of order to reflect this short judgment.